Concern over getting the classification of strategies correct is leading to particular "caution" among money managers, said Chris Redmond, London-based head of manager research at Willis Towers Watson PLC.
"There's a debate around, we've got a fund, it has positive impact, is it Article 8 or 9? I think there is a growing resistance to sign up to Article 9 as people feel they are putting themselves in the spotlight. The unintended consequence of that is Article 8 has become a catch-all for lots of stuff. (It) has become quite watered down and broad — and I think we got there through some of the fears around greenwashing," he said.
Sources agreed that the increased regulatory focus plus allegations of greenwashing are causing money managers to revisit their self-appointed green credentials.
"I think there's a bit of quietness oriented around the fact that everybody is going back to their lawyers or compliance and asking, 'what is our potential risk?'" Indefi's Mr. Doolan said.
That's manifested in some cases as a manager reclassification of funds to Article 8 — so-called "light green" — from Article 9, known as "dark green" for being the most strict category.
Morningstar's second-quarter data show that 16 strategies were downgraded to Article 8 from Article 9 over the three months ended June 30. The firm identified no downgrades to Article 6 from Articles 8 or 9.
Strategies are still being upgraded across the three classifications, Ms. Bioy said, but added that "we can expect more downgrades, more likely from (Article) 9 to 8."
"We have also seen a handful of funds that removed ESG from the name. It is indicative of asset managers wanting to be more cautious given the current regulatory environment. More than ever now, asset managers are cautious about the name they have given their funds," Ms. Bioy said.
The changes have not gone unnoticed across the industry. "When (Articles) 8 and 9 regulation came out, a lot of managers went for 8," said Matthias Fawer, Zurich-based senior ESG and impact analyst at Vontobel Asset Management. "When greenwashing allegations started popping up, more managers were saying, take it back to an Article 6 fund, and let's see how this evolves. I've heard of some fund managers deleting the 'ESG' or 'sustainability' from their fund name" and waiting to see what happens with further rules, Mr. Fawer said. "There's a separation of managers that feel comfortable and others that say it's too delicate and too difficult."